Necessary Components of an Effective Business Plan [Part 4-9]
The initial subsection of the Organization & Management portion of the business plan should be a structure of the organization. The most effective and cleanest way to show the company’s structure is to provide readers with an organizational chart and narrative description. This will demonstrate to your readers that you leave nothing to chance, there is a comprehensive plan in place, and that the most appropriate employee is in charge of each function of the business. Potential investors and employees alike find this to be very important.
Profiles of key management typically follow the organizations structure. What are the individual roles and responsibilities for members of management? What are their education and employment backgrounds and why are they being brought into the business as a member of the board or senior manager? The details may appear unnecessary in one- or two-person businesses; however, individuals, especially investors, reading the business plan, expect to know everyone’s role and level of experience. Provide a well thought-out, detailed write-up including the function of each department or facet of the business.
Again, if you have a Board of Directors, make sure to list all of the members and how you expect to keep them involved with your organization. What salary and benefits packages do you plan to offer employees? Are there any incentive opportunities? Promotions?
One of the most important components for success in the growth of any company is the ability and track record of its owner/management team. Let your readers know about the key people in your company and their backgrounds. Provide resumes that include the following information:
- Position (include brief position description along with primary duties)
- Primary responsibilities and authority
- Unique experience and skills
- Prior employment
- Special skills
- Past track record
- Industry recognition
- Community involvement
- Number of years with company
- Compensation basis and levels (make sure these are reasonable — not too high or too low)
While not all businesses have a Board of Directors, the major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company’s credibility and perception of management expertise.
If you have a Board of Directors, be sure to gather the following information when developing the outline for your business plan:
- Positions on the board
- Extent of involvement with the company
- Historical and future contribution to the company’s success
The following ownership information is important and necessary for the Organizational Structure section of a successful business plan:
- Owners’ names
- Member interest breakdown (Who owns how much)
- Company involvement
- Ownership types (such as common and preferred stock, general partner, limited partner)
- Any other existing equity equivalents such as warrants, options, convertible debt, etc.
- Common stock
An overall marketing strategy should include, at a minimum, these four strategies:
- A market penetration strategy
- A growth strategy. This strategy for building your business might include an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.
- Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
- Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
- A sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?
- Your sales activities. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.
Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution. Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company’s services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company’s line.
Overall, this section should include:
- A detailed description of your product or service (from your customers’ perspective). You should include information about the specific benefits of your product or service. You should also talk about your product/service’s ability to meet consumer needs, any advantages your product has over that of the competition, and the present development stage your product is in (e.g. idea, prototype, etc.).
- Information related to your product’s life-cycle. Ensure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
- Any copyright, patent and trade secret information that may be relevant. This should include information related to existing, pending or anticipated copyright and patent filings along with any key characteristics of your products/services for which you cannot obtain a copyright or patent. This is where you should also incorporate key aspects of your products/services that may be classified as trade secrets. Last, but not least, be sure to add any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
- Research and development (R&D) activities you are involved in or are planning to be involved in. These would include any in-process or future activities related to the development of new products/services. This section would also include information about what you expect the results of future R&D activities to be. Be sure to analyze the R&D efforts of not only your own business, but also that of others in your industry.
You will want to include the following in your funding request:
- Your current funding requirement
- Your future funding requirements over the next five years
- How you will use the funds you receive
- Any long-range financial strategies that you are planning that would have any type of impact on your funding request
How you will use your funds is very important to a creditor. Is the funding requested for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
Last of all, ensure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these is extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).
Historical Financial Data. If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three-to-five years, depending on the length of time you have been in business.
The historical financial data you would want to include would be your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three-to-five years). Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data. All businesses, whether start-up or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do over the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. From there, you can stretch it to quarterly and/or yearly projections for years two-through-five.
Ensure that your projections match your funding requests. Creditors will be on the lookout for inconsistencies. It’s much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing. Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).
The Appendix should include:
- Credit history (personal & business)
- Resumes of key managers
- Product pictures
- Letters of reference
- Details of market studies
- Relevant magazine articles or book references
- Licenses, permits or patents
- Legal documents
- Copies of leases
- Building permits
- List of business consultants, including attorney and accountant
We sincerely hope that this guide has offered you some clarity and guidance as you move forward toward the creation of your own business plan. As an additional tool, we offer a fully assembled business plan template here, (insert link to shopping cart here). We wish you the very best of luck in your future business endeavors.